This shouldn’t really be a surprise. Consider how the market was was structured:

The [EPA] required large fossil-fuel refiners and importers to produce or purchase enough renewable fuels, including biodiesel, to account for up to 9 percent of total production. If the companies couldn’t produce the alternative fuels, they had to buy credits from others that did.

So, the government attempts to create a market out of thin air and use it as an incentive to develop a fuel source lacks the economic viability to create demand on its own. The credits that are traded are known as Renewable Identification Numbers, or RINs. Having created this market, the EPA has done little to police it. When it has acted, it’s been after the fact. The EPA doesn’t review RINs to ensure they’re authentic, and in fact, disclaims any responsibility for doing so, as Shauk reported:

“The fact that EPA has not made a public statement about the validity of particular RINs is not, and should not be taken to be, evidence that those RINs are valid,” the agency said in an email statement. “Therefore, RIN purchasers may choose to perform whatever due diligence they feel is required to ensure that the RINs they handle are valid.”

The application process for producers requires a review from an outside engineer, but not the EPA itself. The agency statement said it does not have “the capacity” to certify the production of renewable fuels.

Markets need oversight and regulation to function properly. If the EPA doesn’t have the “capacity” to ensure that what’s being traded is real, then it might as well admit its “market” is fundamentally flawed.

No one seems to want to The real problem here is that no one wants to own up to what’s really going on here. If biofuels don’t lower refiners’ production costs, then forcing them to use a certain amount is essentially a tax. Creating a complex, largely unsupervised trading system and pretending is a “market” doesn’t change that fact.

The result is a system that’s far less efficient than a tax, more expensive for refiners and more ripe for abuse.